ASIC sets out best ex assessment criteria

Ahead of the full introduction of new best execution requirements on 1 March 2013, Australia’s regulator has advised market participants of how they should conduct their review of best ex processes and policies.

Ahead of the full introduction of new best execution
requirements on 1 March 2013, Australia’s regulator has advised market
participants of how they should conduct their review of best ex processes and
policies, but the watchdog has not required brokers to connect to alternative
venue Chi-X Australia.

In preparation for best execution rules, the Australian
Securities and Investment Commission (ASIC) is advising market participants to
actively assess whether accessing Chi-X delivers better outcomes for clients
“on a consistent basis at a reasonable cost”.

If the assessment showed Chi-X Australia consistently
delivered better outcomes and the benefits outweighed access costs, ASIC said
it expected participants to implement appropriate systems and arrangements to
access Chi-X Australia, amend their best execution policies and procedures, and
inform their clients about the change.

But the watchdog is not demanding participants connect to
the alternate venue.

“Where the assessment indicates that accessing Chi-X would
not deliver better outcomes on a consistent basis at a reasonable cost, we do
not expect participants to access Chi-X or amend their policies and procedures,”
the commission wrote in a market supervision update this week. “However, we
expect participants to continue to monitor whether they should access Chi-X or
other markets in future.”

Since 31 October 2011, the Australian market has operated
within a transitional period where participants have only been required to take
“reasonable steps to obtain the best outcome for their clients” without fully
committing to the new regime.

New best execution rules have been necessary since the
introduction of Chi-X Australia last October as a competitor to the incumbent
Australian Securities Exchange (ASX).

ASIC, originally set the transition period deadline for 31
October 2012 but subsequently moved it back four months.

Ahead of the launch of Chi-X Australia, ASX also introduced
new venues which may fulfil best execution criteria. These comprise: ASX Trade, a market for traditional market participants based on Nasdaq OMX’s Genium INET technology; Volume Match, for block trading flow; and Pure Match, which is geared towards high-frequency trading participants.